A Strategic Model of European Gas Supply (GASMOD)

Franziska Holz, Christian von Hirschhausen and Claudia Kemfert

No 551, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Structural changes in the European natural gas market such as liberalization, increasing demand, and growing import dependency have triggered new attempts to model this market accurately. This paper presents a model of the European natural gas supply, GASMOD, which is structured as a two-stagegame of successive natural gas exports to Europe (upstream market) and wholesale trade within Europe (downstream market), and which explicitly includes infrastructure capacities. We compare three possible market scenarios: Cournot competition on both markets, perfect competition on both markets, and perfect competition on the downstream with Cournot competition on the upstream market. We find that Cournot competition on both markets is the most realistic representation of today's European natural gas market, where suppliers at both stages generate a mark-up at the expense of the final customer (double marginalization). Our results yield a diversified supply portfolio with newly emerging (LNG) exporters gaining market shares. Enforcing perfect competition on the European downstream market would result in positive welfare effects. The limited infrastructure strongly influences the results, and we identify bottlenecks mainly for intra-European trade relations whereas transport capacity on the upstream market is sufficient (with the exception of Norwegian exports) in the Cournot scenario.

Keywords: Natural gas; Strategic behavior; Non-linear optimization; Europe (search for similar items in EconPapers)
JEL-codes: C61 L13 L95 (search for similar items in EconPapers)
Pages: 24 p.
Date: 2006
New Economics Papers: this item is included in nep-eec and nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Journal Article: A strategic model of European gas supply (GASMOD) (2008)
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